Mazurek v. U.S.

• Decision Date: 07 November 2001
• Docket Number: No. 00-31430,00-31430
• Citation: 271 F.3d 226
• Parties: (5th Cir. 2001) ZBIGNIEW EMILIAN MAZUREK, Plaintiff-Appellant, v. UNITED STATES of AMERICA, Defendant-Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

Page 226

271 F.3d 226 (5th Cir. 2001)

ZBIGNIEW EMILIAN MAZUREK, Plaintiff-Appellant, v. UNITED STATES of AMERICA, Defendant-Appellee.

No. 00-31430

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

November 7, 2001

[Copyrighted Material Omitted]

Appeal from the United States District Court for the Eastern District of Louisiana

Before GARWOOD and WIENER, Circuit Judges, and CLEMENT,^* District Judge.

WIENER, Circuit Judge:

Plaintiff-Appellant Zbigniew Emilian Mazurek challenges the district court's denial of his motion to quash the summons of the U.S. Internal Revenue Service (the "IRS"), issued in response to a request by the French Tax Authority (the "FTA"), for Mazurek's financial records. We conclude that, because the IRS acted in good faith and met its burden under United States v. Powell,¹ it is entitled to enforcement of its summons. We therefore affirm the ruling of the district court.

I. FACTS AND PROCEEDINGS

Mazurek is the subject of an investigation by the FTA concerning his civil liability for French taxes. In the course of its investigation, the FTA requested that the IRS obtain Mazurek's relevant financial information located in the United States. The FTA made this request pursuant to the terms of the Convention Between the Government of the United States and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Tax on Income (the "Treaty" or the "U.S.-France Tax Treaty"). In relevant part, the Treaty provides for the exchange of tax and financial information between France and the United States, but does not obligate either country to supply information that is not obtainable under the laws of either country.

Assistant IRS Commissioner (International) John T. Lyons, designated under the Treaty as the Competent Authority for the United States, reviewed the FTA's request and found it to be within the guidelines of the Treaty. After Lyons's approval, an IRS agent issued a summons to Bank One of Louisiana on behalf of the FTA, ordering that bank to turn over Mazurek's relevant financial documents to the IRS. In accordance with Internal Revenue Code ("I.R.C.") § 7609, Mazurek was notified of the service of the summons. In response, Mazurek exercised his statutory right under I.R.C. § 7609 by filing a motion to quash the summons. The IRS responded with a motion seeking to dismiss Mazurek's motion for failure to state a claim and to obtain an order enforcing the summons.

The district court referred the matter to a magistrate judge who, after hearing from both parties, issued a Report and Recommendation. In it the magistrate judge concluded that discovery and a full evidentiary hearing were not necessary, and the summons should be enforced. Adopting the magistrate judge's Report and Recommendation, the district court denied Mazurek's motion to quash and granted the IRS's motion to enforce.

During the course of these proceedings in the district court, Mazurek initiated a separate action in a French forum, contesting the FTA's determination that he was a French resident for the period covered by the FTA's investigation. In his district court motion to quash and his response to proceedings before the magistrate judge (and again on appeal), Mazurek asserted that under French law the FTA could not continue its investigation until a final decision on his residency status is made, arguing that it would therefore be improper for the IRS to provide his financial information to the FTA at this time. The magistrate judge found this argument to be inapposite, concluding that the IRS had presented a prima facie case for enforcement and that Mazurek had failed to allege facts or produce evidence sufficient to undermine the government's prima facie case. More to the point, the magistrate judge determined that Mazurek had not alleged facts sufficient to show that the IRS was acting in bad faith in issuing the summons and seeking to enforce it on behalf of the FTA. The magistrate judge observed that Mazurek's arguments and requests for information inappropriately focused on the legitimacy and bad faith of the FTA in requesting the summons rather than on the good faith of the IRS in seeking to comply with that request under the Treaty. The magistrate judge was convinced that Mazurek's arguments regarding residency were directed at matters of French law best left for French authorities to resolve. After the district court adopted the magistrate judge's report and entered judgment in favor of the IRS, Mazurek timely appealed.

II. ANALYSIS

A. Enforcement of the Summons

1. Standard of Review

In reviewing the district court's grant of a motion to enforce a summons, we accept all facts found by the district court unless they are clearly erroneous.² We then determine whether the government has demonstrated a prima facie case by fulfilling the four factors delineated in Powell.³ The burden on the government to produce a prima facie case is "slight" or "minimal."⁴ Next, if the government meets its burden, we assess whether the opponent of the summons fulfills his "heavy" burden of rebutting the proponent's case by either undermining the proponent's contentions regarding any of the Powell factors or by demonstrating that enforcement of the summons would result in an "abuse" of the court's process.⁵

2. The IRS meets the Powell Factors

In Powell, the Supreme Court identified four factors that the government must show to establish a prima facie case for summons enforcement: (1) The investigation is conducted pursuant to a legitimate purpose; (2) the inquiry is relevant to that purpose; (3) the information sought is not already within the IRS's possession; and (4) the administrative steps required by the I.R.C. have been followed.⁶ The government's minimal burden at this stage can be fulfilled by a "simple affidavit" by the IRS agent issuing the summons.⁷ The Powell framework is employed even when, as here, we consider a summons issued pursuant to a request by a treaty partner.⁸

Assistant IRS Commissioner Lyons reviewed the FTA's request and submitted an affidavit to the district court stating that: (1) The FTA's request was properly made; (2) the requested information was not already in the possession of either the IRS or the FTA; (3) the requested information could be relevant to an investigation of Mazurek's French civil tax liability; and (4) the same type of information could be obtained by the FTA under French law and, if the situation were reversed, the United States could properly request such information from France. On its face, the affidavit establishes the IRS's compliance with Powell's last three factors. In addition, the IRS meets Powell's first ("legitimate purpose") requirement because it is attempting to fulfill the United States's obligations under the Treaty efficiently. Assisting the investigation of a foreign tax authority has been held to be a legitimate purpose by itself.⁹ With the Lyons affidavit, therefore, the IRS established a prima facie case under Powell.

B. Mazurek's Failed Challenge

To rebut the government's prima facie case, Mazurek had either to refute one of the Powell factors that the IRS established or to show that enforcement in the district court would amount to an "abuse" of the judicial process.¹⁰ An abuse of the judicial process occurs when a summons is sought for an "improper purpose, such as ... harass[ing] the taxpayer, ... put[ting] pressure on him to settle a collateral dispute" or obtaining information solely for a criminal prosecution under the guise of a civil liability investigation.¹¹

1. Abuse of Process

As already noted, in contrast to the IRS's slight prima facie burden, the taxpayer's burden at the rebuttal stage is heavy. Mazurek cannot show that the IRS's summons constituted an abuse of the judicial process. He has adduced no evidence, and indeed has not even alleged, that the summons is being used to harass, to gain leverage, or pretextually to develop a criminal investigation.

Furthermore, even if we were to look into Mazurek's legal proceedings in France, we would not find that he has demonstrated that the FTA's Treaty request for a summons constituted an abuse of judicial process, i.e., that the French investigation was or is being conducted for an illegitimate purpose. Mazurek incorrectly conflates his challenge to his residency determination and the alleged illegitimacy of the FTA's investigation. It does not follow, simply because Mazurek challenges the FTA's residency determination, that the FTA's investigation is being conducted for an improper purpose. Mazurek has presented no evidence to suggest that the FTA is investigating him so as to harass or gain leverage. To the contrary, Mazurek concedes that the FTA's sole purpose is to determine his civil liability for French taxes. Therefore, even if French law requires the FTA to suspend its investigation pending resolution of the residency appeal, there is no indication that the FTA's purpose is not legitimate in any way. Thus, Mazurek must challenge the four Powell factors directly.

2. The Powell Factors

Of the four Powell factors, the only one that Mazurek could conceivably contest is the "legitimate purpose" requirement. He attempts to do this by arguing that, because he was not a resident of France for the periods implicated by the FTA investigation, any request for information covered by the investigation is not for a legitimate purpose. Essentially, Mazurek contends that, during the time that the determination of his residency status is awaiting final resolution in a French court, the FTA's request cannot be legitimate.

The problem with this reasoning, as the magistrate judge noted, is that Mazurek focuses on the legitimacy of the FTA's investigation, not on the legitimacy of the IRS's compliance with the FTA's request. Yet, to rebut the Powell requirement, Mazurek must show that the IRS is acting in bad faith.¹² As...